Speech
Introduction
It is a pleasure to be back at the Banque de France, whose history stretches back over two centuries and whose archives contain the traces of more monetary regimes, crises, and policy experiments than most central banks have ever experienced. It is equally a pleasure to be a guest of PSE, where economic history is very much a core discipline.
The combination of a central bank with deep institutional memory and a research community with a strong historical orientation is, I think, exactly the right setting for the topic I want to address today. My theme is simple to state, but harder to unpack: the relationship between macroeconomic policy and economic history, which I think is best described as a genuine two-way street.
Now for a long time, the traffic on this street was relatively quiet, seen only here and there, and typically in one direction at a time. Certainly, economic historians would sometimes take ideas or probe questions from the macropolicy world; meanwhile, policymakers might occasionally cite an historical episode as an illustration or a cautionary tale. But the flow in either direction was sporadic, somewhat limited, and often superficial.
However, over the past two or three decades, and especially since the global financial crisis, I would argue that this has changed. The street has widened, the flow of traffic has intensified, and the drivers are going more rapidly in both directions.
Economic historians have moved closer to the frontier of macroeconomic questions, adopting the identification strategies, data standards, and modelling approaches of modern macroeconomics. At the same time, macroeconomic policymakers – central bankers in particular – have become more willing, and in some cases more compelled, to draw on historical evidence when thinking about the present.
Arguably, the last fifteen years have made this shift unavoidable. A global financial crisis, a sovereign debt crisis in Europe, a once-in-a-century pandemic, supply-chain disruptions, energy shocks, geopolitical fragmentation, and tariff conflicts have all reminded us that the world rarely behaves according to the neat, linear, stationary assumptions embedded in many economic models chalked up on the blackboard.
Instead, when confronted with rare events, non-linearities, and structural breaks, policymakers very naturally turn to history, because history is the only record we have of how economies behave outside the narrow window of recent experience or the typical range of valid extrapolation in our simple theories and statistical exercises.
In what follows, I want to do three things.
First, I will discuss how macroeconomic policy debates have shaped the evolution of economic history as a field. I will argue that the first-order questions that matter for macroeconomic policy – questions about monetary regimes, financial crises, credit cycles, fiscal multipliers, exchange rate systems, and the international transmission of shocks, etc – have increasingly become the questions that animate economic historians, and that this is not an accident.
Second, I will show how economic history, in turn, has shaped macroeconomic policymaking. I will draw on examples from the literature, and the recent past, but also on my own experience as a member of the Bank of England’s Monetary Policy Committee, to illustrate how historical thinking can helpfully and constructively influence the way we take a critical stance as we interpret data, assess risks, and choose policy paths.
Third, I will offer a methodological reflection and a note of caution. History is an invaluable guide, but it is not a perfect map. The challenge is to use history wisely: to extract mechanisms rather than superficial analogies, to respect institutional and structural differences, and to avoid the temptation to overfit the past to the present.
I. How Macroeconomic Policy Has Shaped Economic History
When many of us started out (I guess I sound old), economic history was already a lively and respected field. But its centre of gravity lay elsewhere.
The dominant themes were long run growth and structural change: the commercial revolution, the Industrial Revolution, the demographic transition, the rise of human capital, the evolution of inequality, the spread of technology, the growth of financial systems, the integration of markets. These were, and remain, fundamental questions. Yet macroeconomic policy in the modern sense was not at the heart of the field.
In my professional lifetime, that has changed. Economic history, in both methods and object of inquiry, has moved much closer to modern macroeconomics. The questions that preoccupy central banks and finance ministries have increasingly become the questions that economic historians work on.
I would also argue that this is not simply a matter of taste; it reflects deeper shifts in the toolkit of economic history and the broader policy environment.
To understand this evolution, it is useful to think in terms of three overlapping developments:
- The reinterpretation of foundational episodes, especially the gold standard and the Great Depression.
- The expansion of macroeconomic history into new domains, including post-war monetary and fiscal regimes, financial cycles and crises, and international macro.
- The construction of long run macro-financial datasets that make it possible to study rare events and slow-moving processes with modern empirical tools.
Let me take these in turn.
1. Foundational episodes: the gold standard and the Great Depression
The first major wave of macroeconomic history emerged from the study of the gold standard and the Great Depression. These episodes provided the initial laboratory in which economists could examine the interaction between monetary regimes, financial institutions, and macroeconomic outcomes. They also demonstrated the value of combining narrative evidence with quantitative analysis—a methodological approach that would become central to the field.
Friedman and Schwartz and the monetarist turn
Friedman and Schwartz’s Monetary History of the United States marked a decisive break with earlier interpretations of the Great Depression and put policy questions centre-stage. Against the then dominant view that the Depression was primarily a real shock or a consequence of structural weaknesses, they argued that the Federal Reserve’s failure to act as lender of last resort transformed a severe recession into a catastrophic collapse. Their narrative was supported by quantitative arguments using detailed data on money, credit, and banking, and it placed monetary policy at the centre of the story.
This work did several things at once. It mainstreamed the idea that monetary policy could have powerful real effects, advancing a line of thinking that had been around since Thornton and advanced by Keynes, but now amplified and illustrated by a cataclysmic real-world event. It also established a template for the forensic use of historical data in macroeconomic analysis: a careful narrative reconstruction of historical events, combined with rigorous empirical evidence. And it provided a scientific approach, organizing a set of hypotheses that could be tested, refined, and challenged by later scholars.
The influence of Friedman and Schwartz extended far beyond the Depression. Their emphasis on the importance of monetary policy in stabilising the economy helped lay the intellectual foundations for the modern central banking consensus that emerged in the late twentieth century. Even today, debates about the appropriate stance of monetary policy during crises often echo themes first articulated in their work: the dangers of passivity, the importance of acting decisively, and the role of expectations.
Temin, Eichengreen, Bernanke: mechanisms and international linkages
A second generation of scholars deepened the analysis by focusing on the mechanisms through which monetary regimes and financial institutions transmitted shocks. Let me mention three prominent and highly influential examples.
Peter Temin emphasised the contractionary role of the gold standard more globally and the constraints it imposed on domestic policy. In his work, the gold standard is not a neutral backdrop but an active force: a system that transmitted deflationary pressures and limited the ability of governments and central banks to respond to macroeconomic shocks. The Depression was prolonged and deepened because governments clung to deflationary policies and international spillovers amplified these effects.
The work of Barry Eichengreen, in the grand narrative of Golden Fetters as well as in quantitative analyses, showed how adherence to gold transmitted deflation internationally and amplified the downturn of the early 1930s. Countries that left gold earlier tended to recover sooner; those that clung to gold suffered longer. Contrast here the British or Scandinavian experience with that of the US and France. The ideology of the gold standard, in this view, was a mechanism for synchronising policy mistakes across countries.
Looking deeper into the financial plumbing, the research of Ben Bernanke, which garnered a Nobel Prize, highlighted the role of financial intermediation and credit channels. In his interpretation, the collapse of the banking system did more than just reduce the money supply. It disrupted the allocation of credit, destroyed information capital, and impaired the functioning of financial markets. On top of the monetary contraction, the Depression was thus a dramatic example of granular financial dislocation, a story of micro-to-macro.
Together, this second wave of research, to which many other distinguished authors contributed, transformed our understanding of the Great Depression from an inexplicable collapse into a coherent narrative of policy errors, institutional fragility, and international spillovers. It also underscored the importance of global linkages – a theme that would become increasingly relevant in the era of financial globalisation.
The modern empirical turn
A third wave of macroeconomic history research expanded the empirical base and refined identification strategies, tackling with greater rigour the still-burning questions about the Great Depression but also branching out into new areas of applied macro.
For example, Christina and David Romer developed techniques to estimate monetary policy shocks using improved data and methods, challenging some of the earlier conclusions and refining our understanding of the timing and magnitude of policy actions.
Mark Carlson, Gary Richardson, Kris Mitchener used archival evidence to construct datasets on banking panics and examined their local effects. Mike Bordo, Chris Meissner and Marc Flandreau, among others, studied the effects of the gold standard on capital markets and trade, and how its evolution could be understood via network effects.
International comparative studies of fiscal policy during the Depression, using narrative identification or institutional variation, have shed light on the size and conditions of fiscal multipliers in a liquidity trap, and the work of Eichengreen and O’Rourke comes to mind. And work by Eric Monnet, Gauti Eggertsson, and others has revisited the interwar period with new data and models, exploring the interaction of monetary policy, expectations, and structural change.
This corpus of work, which continues to expand, demonstrated that macroeconomic policy mistakes indeed can have catastrophic consequences – and that understanding those mistakes requires a blend of narrative and quantitative analysis. It also showed that historical data, when carefully constructed and analysed, can provide insights that are difficult to obtain from contemporary data alone, precisely because history gives us variation across time, across countries, and across policy regimes that the most recent past does not.
2. Expansion into new domains: from Bretton Woods to financial cycles
The Great Depression was the starting point, but the field did not stop there. Over the past three decades, macroeconomic history has expanded dramatically into areas once considered the exclusive domain of contemporary macroeconomists. This expansion has been driven by both intellectual curiosity and policy demand.
Bretton Woods and post-war monetary regimes
Time marches on and economic history did not end in the 1930s. The post-war Bretton Woods system and its aftermath have been a major focus.
Work by Michael Bordo, Barry Eichengreen, Catherine Schenk, and others has shown how institutional design, capital controls, and central bank practices shaped post-war stability and instability. The Bretton Woods era is particularly interesting because it gradually evolved towards fixed exchange rates, with increasing capital mobility, and a desire for domestic monetary policy autonomy. This is an arrangement that crashes into the textbook trilemma, but in practice it could work for a time because of the specific institutional and political glue of the post-war era. Of course, the forces of macroeconomic logic in the end prevailed, and the system collapsed under the weight of its contradictions, but it provides us with a case study of how contradictions can be managed for a time if there is the necessary political will.
Eric Monnet’s research on the Banque de France and other central banks has been especially influential in demonstrating how monetary policy operated in a world of credit and capital controls, administered finance, and state-bank coordination. These studies remind us that modern monetary policy – with its emphasis on short term interest rate rules, inflation targeting, and forward guidance – is a relatively recent invention. For much of the twentieth century, central banks operated through quantitative controls, direct interventions in credit markets, and close coordination with fiscal authorities.
Understanding these regimes is not a matter of historical curiosity. Instead, it can help clarify contemporary debates about unconventional monetary policy, financial stability and credit policies, as well as the appropriate division of labour between central banks and fiscal authorities in an era of central bank independence. When central banks today engage in large scale asset purchases, targeted lending schemes, or yield curve control, they are, in some sense, revisiting older instruments in a new guise. Economic history helps us to see that continuity in context.
Financial crises and credit cycles
Another major area of expansion has been the study of financial crises and credit cycles. Carmen Reinhart and Kenneth Rogoff assembled a vast dataset on banking, currency, and sovereign debt crises over several centuries. Òscar Jordà, Moritz Schularick and I constructed long run data on credit, house prices, and macroeconomic outcomes for advanced economies which we used to study the patterns of financial crises across countries.
The central finding of this work is quite powerful: credit booms, especially those associated with rapid growth in bank lending to the private sector, are strong predictors of future financial crises. Moreover, the recessions that occur after large credit booms tend to be more severe and more persistent. The hangover from the pre-crisis expansion of balance sheets matters for the post crisis path of the economy.
This accumulation of historical evidence has had a direct impact on policy thinking in the last decade, as it underpins the rationale for macroprudential regulation: the idea that policymakers should monitor and lean against the build-up of systemic risk, not just respond after the fact. It also informs debates about the interaction between monetary policy and financial stability. If low interest rates encourage leverage and risk taking, and if high leverage makes crises more likely and more damaging, then the conduct of monetary policy cannot ignore the financial cycle.
Monetary and fiscal policy identification
A further strand of work has focused on identifying the effects of monetary and fiscal policy using historical data. The work of the Romers and Valerie Ramey stands out. And then James Cloyne, Òscar, Moritz and I, as well as others, of course, have used narrative identification, institutional changes, or high frequency surprises to isolate policy shocks in historical settings.
The advantage of historical data here is that it often contains large, discrete policy changes – such as regime shifts, devaluations, or major tax reforms – that provide quasi experimental variation. In addition, using stratification with a sufficiently large sample size, which history affords us, we can explore the state dependence of policy responses, a crucial issue for active policymaking, now more than ever.
For example, historical episodes of fiscal consolidations can be used to estimate multipliers under different conditions: when interest rates are at the lower bound, when debt is high, when the exchange rate is fixed or floating. Similarly, historical changes in monetary-fiscal regimes – from fixed to floating, from discretion to rules, but also from fiscally led to monetary led regimes – provide variation that can be exploited to understand the effects of different policy frameworks.
This work has helped bridge the gap between historical analysis and modern
macro-econometric practice. It shows that economic history is not just about telling stories; it can also be about estimating causal effects, probing state-dependence, testing theories, and informing policy debates with stronger evidence that would otherwise be unavailable.
The macroeconomic trilemma and international integration
International macroeconomic history has also flourished, and let me use an example close to home. The trilemma – the idea that a country cannot simultaneously have a fixed exchange rate, free capital mobility, and an independent monetary policy – has been explored in depth using historical data. Work by Obstfeld, Shambaugh, and myself has documented how countries have navigated this trilemma over time, and how the trade-offs have shifted with financial globalisation.
One of the key insights from this literature is that the degree of monetary autonomy under different regimes depends not only on the formal exchange rate arrangement but also on the extent of capital mobility, the credibility of the regime, and the structure of financial markets. Under Bretton Woods, for example, capital controls allowed countries to maintain some monetary autonomy despite fixed exchange rates. And, while the trilemma holds, other channels can matter: in the modern era of high capital mobility, even countries with floating exchange rates may find their interest rates affected by spillovers from U.S. and global financial markets, as work by Hélène Rey showed, a powerful example of how domestic monetary policy is modulated by cross-border financial channels.
These findings are directly relevant to contemporary debates about “global financial cycles”, the role of the US dollar, and the scope for independent monetary policy in small open economies.
The natural rate of interest and secular trends
Finally, long-run historical data have been used to study secular movements in real interest rates, often interpreted through the lens of the “natural rate of interest.” For example, work by Marco Del Negro and co-authors has combined historical and modern data to estimate the evolution of the natural rate over more than a century.
Many others have been working on the long-run natural rate question, myself included. The broadly held conclusion across the many studies in this area is that real interest rates have trended downward over the past few decades, and that this decline appears to have structural components: including demographics, productivity growth, risk preferences, as well as global savings and investment patterns. Historical data help us see that the low interest rate environment of the 2010s was not simply a cyclical phenomenon, but part of a global longer run trend.
For central banks, this matters. If the natural rate is low, then the policy rate consistent with stable inflation and full employment is also low, which increases the likelihood of hitting the effective lower bound. This, in turn, has implications for the design of monetary policy frameworks, the scope for unconventional policy tools, and the interaction between monetary and fiscal policy.
3. Long run datasets: the quiet revolution
Underlying all of these developments is a quiet revolution in data. The construction of long-run macroeconomic datasets is painstaking. It involves combing through archives, reconciling inconsistent definitions, adjusting for regime changes, and dealing with missing or unreliable observations. It is not glamorous. Like many public goods, it can appear to be under-rewarded, but I don’t feel that way and many others seem to agree.
And progress continues. Michael Bordo, Barry Eichengreen, and many others’ work on national accounts, monetary aggregates, exchange-rate regimes and capital controls are examples. So too are the Jordà-Schularick-Taylor macrohistory database, or the Bank of England’s ‘Millennium Database’. There are now many other data projects to add to this list, in existence or in development, and we should be thankful for them. It is to be hoped that these datasets are able to do for macro-financial history what national accounts did for post-war macroeconomics: that they can create a shared empirical foundation on which theory, policy analysis, and historical interpretation can be built.
For central banks, I believe that a data-based long-run perspective is invaluable. It allows us to see beyond the narrow window of recent experience, to identify patterns that unfold over decades rather than years, and to assess the frequency and severity of rare events.
For example, it lets us see that monetary policy might not have been neutral in the long run, with hysteresis having the potential to generate persistently negative real effects – something that one would not be able to detect with a standard business cycle lens. It also helps us calibrate our financial crisis models and stress tests: if we know that certain combinations of credit growth, asset price inflation, and external imbalances have historically been associated with crises, we can use that information to inform our risk assessments today.
In short, macroeconomic policy has shaped economic history by posing questions that required new data, new methods, and new perspectives. Economic historians have responded, and the field has been transformed.
II. How Economic History Has Shaped Macroeconomic Policy
Let me now turn to the other direction of travel on our two-way street: how economic history has shaped macroeconomic policy. Here the influence is perhaps less visible in formal analysis, or even in explicit communications, but very real in the way policymakers think, talk, and act – especially in times of stress.
I will highlight five areas where historical analysis has been particularly influential, and in a few cases will note where it has shaped my own thinking on the MPC.
1. Financial instability, credit booms, and the role of monetary policy
The first area is financial instability and the role of credit. The recent accumulation of long-run evidence on credit booms and crises that I mentioned above has had a profound impact on how many policymakers think about the interaction between monetary policy and financial stability.
The key empirical regularities are straightforward. Periods of rapid credit growth, especially when accompanied by rising asset prices and leverage, are often followed by financial crises. Crises that occur after large credit booms tend to be more severe and more persistent. The recovery from such crises is typically slow, with prolonged weakness in investment, output, and employment. Thus, the long recession after the Global Financial Crisis was a classic example of a repeating pattern (and certainly not a Black Swan at all).
From a policy perspective, this raises difficult questions. Should monetary policy “lean against the wind” of credit booms, raising interest rates more than would be justified by inflation and output alone, in order to reduce the risk of future crises? Or should financial stability actions be left to macroprudential tools, with monetary policy focusing narrowly on price stability and real activity?
Economic history does not provide a simple answer, but it does provide contextual evidence. It shows that the costs of financial crises are large and long lasting, and that the build-up of vulnerabilities often occurs in periods of apparent tranquillity. It also shows that relying solely on ex-post crisis management is risky: once a crisis has erupted, the options are limited and the trade-offs are painful.
This historical perspective has made me attentive to the interaction between household debt, interest-rate sensitivity, and the transmission of policy. When we consider the impact of a rate increase or cut, we are not just moving a policy instrument in a simple flow-model; we are affecting the balance sheets of millions of households and firms, whose behaviour will depend on their leverage, their expectations, and their memories of past shocks. History reminds us that these private-sector balance-sheet channels can be powerful.
2. Hysteresis and real economic persistence
A second area where history has influenced policy thinking is in regard to hysteresis – the idea that downturns in activity, through path dependence, can leave permanent or long-lasting scars on the supply-side in terms of the attainable future levels of output, employment, and/or productivity.
The post-Depression literature, the post-war European experience, evidence from emerging markets, and more recent work on the Great Recession all point to the same conclusion: output losses are often persistent, not temporary. Deep recessions can reduce the capital stock, erode human capital, discourage R&D and innovation, and alter the structure of the economy in ways that are not easily offset later.
For policymakers, this has two implications. First, it raises the stakes of stabilisation policy and brings new trade-offs into play. If recessions have permanent effects, then preventing or mitigating them is not simply about smoothing fluctuations around a given trend but preserving the trend itself. Second, it complicates the interpretation of data. If potential output is itself affected by past shocks, then estimates of the output gap become more uncertain, and the distinction between cyclical and structural becomes blurred.
This historical evidence on hysteresis has made me cautious about assuming rapid rebounds to previous equilibria, especially after large shocks. During the pandemic, for example, there was a debate about how much of the observed weakness in output and employment would prove temporary. History suggested that some scarring was likely, especially in sectors where business models were disrupted or where workers faced prolonged unemployment. It also appears to be an historical regularity that savings rates are high, and investment rates depressed, following crises as households and firms grapple with a sense of uncertainty, something that seems to hold true in the UK today.
At the same time, history also shows that policy can influence the extent of hysteresis. Stabilisation measures – whether monetary, fiscal, or financial – can reduce the depth and duration of recessions and thereby limit the damage to the supply side. This reinforces the case for timely and forceful action in the face of large adverse shocks.
3. Behavioural macroeconomics: recency bias, scarring, and expectations
A third area where history matters is behavioural. Macroeconomic models often assume rational, that is, model-consistent, expectations and stable preferences at all times. History reminds us that expectations are shaped by experience, and that experience is unevenly distributed within and across generations, as shown for example by the work of Ulrike Malmendier and Stefan Nagel.
Consider inflation. Generations that lived through high and volatile inflation – say, in the 1970s and early 1980s – tend to have different attitudes toward inflation risk than those who lived mainly in the era of low and stable inflation. The former may be more sensitive to price changes, more inclined to demand indexation. Conversely, the latter may be less reactive in their beliefs, more willing to accept low nominal returns, or more surprised when inflation rises. This is an active and fruitful area of research.
Similarly, behavioural change may explain why financial crises leave scars, for example via equity market crashes. Households and firms that have experienced a severe crisis may become more risk averse, more cautious in their borrowing and lending, more inclined to hold safe assets. These behavioural changes can persist long after the crisis itself has passed, affecting saving, investment, and portfolio choices.
As I sit on the MPC, these historical lessons have reinforced the importance of communication, credibility, and expectations management. When inflation rose sharply after the pandemic, policymakers had to think not only about the mechanical pass-through of energy prices and supply bottlenecks, but also about how firms and households would interpret this shock. Would they see it as temporary or permanent? Would they revise their expectations of future inflation? Would they change their wage setting and price setting behaviour? (And the same question arises today, of course.)
History suggested that if inflation remained too high for too long, or if policy responses were seen as hesitant or inconsistent, there was a risk of a de-anchoring of expectations. Once that happens, bringing inflation back under control becomes more costly. The experience of the 1970s and 1980s loomed large in these discussions, not as a perfect analogy, but as a reminder of the importance of acting in a way that preserves credibility.
4. Tariff conflicts, trade diversion, and lessons from the 1930s
A fourth area where history has been instructive lately is trade policy.
The tariff escalations of the late 1920s and early 1930s, epitomised by the Smoot-Hawley Act in the United States and the subsequent wave of retaliation, contributed to the collapse of global trade. The mechanisms are familiar: higher tariffs raise trade costs, reduce trade volumes, and distort patterns of specialisation; retaliation spirals amplify these effects; uncertainty about future trade policy discourages investment; and political-economy dynamics make it hard to reverse course later on.
In the 2010s and 2020s, as tariff tensions resurfaced and talk of “trade wars” returned, these historical lessons became newly relevant for policymakers. The global economy today is more complex than in the 1930s, with longer supply chains, more services trade, and more multinational production. But the basic logic of protectionism and retaliation has not changed and the same mechanisms are at work again.
For central banks, trade policy is exogenous, taken as given. Tariffs and trade barriers affect relative prices, supply chains, and productivity. They can generate sectoral shocks, alter the terms of trade, and influence inflation dynamics. Historical evidence on the macroeconomic effects of trade disruptions helps us think about how to interpret such shocks and how they might interact with monetary policy. The large extent of trade diversion in the 1930s is an instructive example, documented in the work of Alan de Bromhead et al., and it is something we might be starting to see again right now.
5. Oil and commodity shocks
Fifth and finally, let me turn to oil and commodity shocks. Economic historians have been studying commodity shocks and arbitrage over many centuries, e.g., for food and other products, as in the work of Gunnar Persson and David Jacks. And for macroeconomic policy the history of oil shocks is a recurring theme in recent decades, and here we are again.
The oil price spikes of the 1970s forced economists and policymakers to confront the reality that some shocks generate both inflation and recession. James Hamilton’s work showed that oil shocks preceded nearly every post-war US recession up to that point. Bernanke, Mark Gertler, and Mark Watson showed that monetary policy responses could amplify or dampen the effects of those shocks. This reveals a more general point that a shock, whatever its nature, does not have consequences which follow inexorably but which crucially depend on the behaviour of policymakers (and other agents in the economy).
More recent research has extended these insights to a broader set of energy and commodity shocks, and to the role of global supply chains. The energy price surge after Russia’s invasion of Ukraine, for example, raised questions that were familiar in structure but different in detail: How persistent will the shock be? How much of it will pass through to core inflation? How will households and firms adjust their behaviour? What is the appropriate monetary policy response?
History does not tell us exactly what to do, but it frames the problem. It reminds us that ignoring supply shocks and international arbitrage is not an option, that overreacting can be costly, and that the credibility of the nominal anchor matters for how such shocks propagate. And my earlier caveats about state dependence also apply here: how a shock plays out depends critically on conditions at the time of impact, such as whether the economy is weak or strong
III. A Methodological Reflection: What History Can and Cannot Do
Before concluding, I want to step back and reflect on the methodological foundations of this two-way street. The dialogue between history and policy is powerful, but it requires care. Used well, history can discipline our thinking, broaden our perspective, and enrich our models. Used poorly, it can mislead, encourage superficial analogies, or provide false comfort. Let me highlight three principles that I think are important.
1. Mechanisms, not metaphors
First, we should look for mechanisms, not metaphors. It may be tempting to say, “the 1970s are back” or “could it be another Great Depression?” or “this is our Bretton Woods moment”. Such soundbites might grab attention, but they can be analytically dangerous. No historical episode is ever exactly repeated. Institutions, technologies, political structures, and global linkages change. As do the policy response we have in our arsenal.
What we should look for instead are mechanisms that recur across time: the way credit booms sow the seeds of crises; the way fixed exchange rate regimes constrain policy; the way supply shocks interact with expectations; the way trade conflicts depress or divert imports. These mechanisms can operate in different institutional settings and with different magnitudes, but they share a common logic.
Economic history is at its best when it identifies such mechanisms and traces their operation across multiple episodes. Policymakers can then ask: which of these mechanisms are relevant today? How strong are they? How do they interact with the specific features of our current environment?
2. Respect for institutional and structural differences
Second, we must respect institutional and structural differences.
The central banks of the 1930s operated under the gold standard, with limited mandates and rudimentary communication strategies. The central banks of the 1970s faced different political pressures, different labour market institutions, and different financial systems. The central banks of today operate under inflation targeting regimes, with explicit mandates, sophisticated models, and extensive communication.
Across those three eras the local and global economic backdrops have also changed dramatically in a myriad of other ways. The structure of the economy – the share of services, the degree of financialisation, the openness to trade, the nature of technology – all of these differ across time. A given shock will have different effects in different environments.
This does not mean that history is irrelevant; it means that we must be careful in how we use it. We cannot simply transplant policy lessons from one era to another. We must carefully adapt them, taking into account the institutional and structural context.
3. The limits of extrapolation
Third, we must recognise the limits of extrapolation. Historical data are finite. Even with the best long run datasets, we have only a limited number of observations on certain types of events: global pandemics, systemic financial crises, large scale wars, transitions between monetary regimes, trade wars. We cannot estimate everything with precision, and we should be honest about the uncertainty.
Moreover, the future may bring shocks that have no close historical precedent, or combinations of shocks that are novel. Climate change, digital currencies, cyber risks, and geopolitical fragmentation may interact in ways that we have not seen before.
Even when historical analogues do exist, identifying in real time whether the economy has entered a new regime, or is merely experiencing a large but temporary disturbance, is notoriously difficult. History can still help, by providing analogies and mechanisms, but it cannot provide a complete guide.
For policymakers, this means that history should be one input among many. It should inform our priors, shape our questions, and constrain our models, but it should not be treated as an oracle. We must combine historical insight with theory, contemporary data, and judgment.
Conclusion
Let me conclude by returning to the image with which I began: the two-way street between macroeconomic policy and economic history.
On one side of the street, macroeconomic policy has shaped economic history. The questions that matter for central banks and finance ministries – about monetary regimes, financial crises, fiscal stabilisation, and international linkages – have driven economic historians to build new datasets, develop new methods, and reinterpret old episodes. The field has moved closer to the frontier of macroeconomics, adopting identification strategies, structural models, and quantitative techniques that make its findings directly relevant to policy debates.
On the other side of the street, economic history has shaped macroeconomic policy. Historical evidence on credit cycles, crises, hysteresis, expectations, trade, and commodity shocks has influenced the way policymakers think about risks, interpret data, and design frameworks. It has reminded us that rare events do occur, that regimes do change, and that the costs of policy mistakes can be large and long lasting.
The construction of long run datasets has been transformative. It has allowed us to see beyond the narrow window of recent experience, to identify patterns that unfold over decades, and to assess the frequency and severity of rare events. It has given us a richer empirical foundation for thinking about issues like the natural rate of interest, the interaction between monetary and financial stability, and the macroeconomic consequences of trade and energy shocks.
At the same time, history has taught us humility. It has shown us that our models are incomplete, that our knowledge is imperfect, and that the future will always surprise us. It has reminded us that institutions matter, that behaviour is shaped by experience, and that policy operates in a world of uncertainty.
The challenge, then, is to use history wisely. Not as a source of comforting analogies or ready-made answers, but as a way of broadening our perspective, sharpening our questions, and grounding our judgments. If we can do that – if we can maintain a genuine two-way street between macroeconomic policy and economic history – then both fields will be stronger.
For central banks, this means continuing to invest in historical research, data, and dialogue. It means having historians in the building, not just as archivists but as fully engaged analysts and interlocutors. It means being willing to ask, when confronted with a new problem: “What does history have to say about this?” – and being prepared to listen to the answer, even when it complicates our models.
For economic historians, it means continuing to engage with contemporary policy debates, to adopt and adapt modern methods, and to frame their work in ways that speak to the concerns of policymakers. It means recognising that the questions we ask and the episodes we study can have real (and beneficial) consequences for how policy is made.
The world we face today is not short of challenges. We will not find all the answers in the past. But we will find some of the mechanisms, some of the warnings, and some of the possibilities there. It is the only laboratory we have.
If we keep the two-way street open – if we allow ideas, evidence, and questions to flow between economic history and macroeconomic policy – then we will be better equipped to navigate whatever lies ahead.
Thank you.
Acknowledgements
Thanks to Lennart Brandt and Vitor Dotta for help preparing this speech, and to Olly Bush for helpful comments.
Select bibliography
Note: This is a select bibliography. A great many scholars have contributed to the vast range of topics I have discussed in this speech, and space does not permit me to mention all of them nor all of the important papers that have been written.
Aikman, David, Oliver Bush, Alan M. Taylor. 2016. “Monetary versus Macroprudential Policies: Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe Report.” NBER Working Paper 22380.
Almunia, Miguel, Agustín Bénétrix, Barry Eichengreen, Kevin H. O’Rourke, and Gisela Rua. 2010. From great depression to great credit crisis: similarities, differences and lessons. Economic Policy 25(62): 219-265.
Bernanke, Ben S. 1983. Nonmonetary effects of the financial crisis in propagation of the great depression. American Economic Review 73 (3): 257–276.
Bernanke, Ben S. 2018. The real effects of disrupted credit: evidence from the global financial crisis. Brookings Papers on Economic Activity 2018 (2): 251–342.
Bernanke, Ben S., Mark Gertler, and Mark Watson. 1997. Systematic Monetary Policy and the Effects of Oil Price Shocks. Brookings Papers on Economic Activity 28(1): 91–157.
Bordo, Michael D. 2020. The Imbalances of the Bretton Woods System 1965 to 1973: U.S. Inflation, the Elephant in the Room. Open Economies Review 31(1): 195–211.
Bordo, Michael D., and Barry Eichengreen (eds.). 2007. A Retrospective on the Bretton Woods System. Chicago: University of Chicago Press.
Bordo, Michael D., Barry Eichengreen, Daniela Klingebiel, and María Soledad Martínez-Pería. 2001. Is the crisis problem growing more severe? Economic Policy 16 (32), 52–82.
Bordo, Michael D., and Finn E. Kydland. 1995. The gold standard as a rule: An essay in exploration. Explorations in Economic History 32: 423–64.
Bordo, Michael D., and Robert N. McCauley. 2018. Triffin: dilemma or myth? BIS Working Paper 684.
Bordo, Michael D., Eric Monnet and Alain Naef. 2019. The Gold Pool (1961–1968) and the fall of the Bretton Woods system: Lessons for central bank cooperation. Journal of Economic History 79(4): 1027–1059.
Bordo, Michael D., and Hugh Rockoff. 1996. The gold standard as a “good housekeeping seal of approval”. Journal of Economic History (56): 389–428.
Carlson, Mark, Sergio Correia, and Stephan Luck. 2022. The effects of banking competition on growth and financial stability: Evidence from the national banking era. Journal of Political Economy 130(2): 462–520.
Carlson, Mark A., Kris J. Mitchener, and Gary Richardson. 2011. Arresting banking panics: Federal Reserve liquidity provision and the forgotten panic of 1929. Journal of Political Economy 119(5): 889–924.
Cerra, Valerie, and Sweta Chaman Saxena. 2008. “Growth Dynamics: The Myth of Economic Recovery.” American Economic Review 98(1): 439–457.
Cloyne, James. 2013. Discretionary Tax Changes and the Macroeconomy: New Narrative Evidence from the United Kingdom. American Economic Review 103 (4): 1507–28.
Cloyne, James, Nicholas Dimsdale, and Patrick Hürtgen. 2025. Are tax cuts contractionary at the zero lower bound? evidence from a century of data. Journal of Political Economy 133(2): 568–603.
Cloyne, James, Nicholas Dimsdale, and Natacha Postel-Vinay. 2024. Taxes and growth: new narrative evidence from interwar Britain. Review of Economic Studies 91(4):
2168-2200.
Cloyne, James, Patrick Hürtgen, and Alan M. Taylor. 2022. Global Monetary and Financial Spillovers: Evidence from a New Measure of Bundesbank Policy Shocks. NBER Working Paper 30485.
Cloyne, James, Òscar Jordà, and Alan M. Taylor. 2023. State-dependent local projections: Understanding impulse response heterogeneity. NBER Working Paper 30971.
Davis, Josh, Cristian Fuenzalida, Leon Huetsch, Benjamin Mills, and Alan M. Taylor. 2024. Global Natural Rates in the Long Run: Postwar Macro Trends and the Market-Implied r* in 10 Advanced Economies. Journal of International Economics 149(C): 103919.
de Bromhead, Alan, Alan Fernihough, Markus Lampe, and Kevin H. O'Rourke. 2019. When Britain Turned Inward: The Impact of Interwar British Protection. American Economic Review 109(2): 325–352.
Del Negro, Marco, Domenico Giannone, Marc P. Giannoni, Andrea Tambalotti. 2019. Global trends in interest rates. Journal of International Economics 118(C): 248–262.
Eggertsson, Gauti B. 2012. Was the New Deal Contractionary? American Economic Review 102(1): 524–555.
Eichengreen, Barry. 2021. Bretton Woods After 50. Review of Political Economy 33(4): 552–569.
Eichengreen, Barry. 1992. Golden Fetters: The Gold Standard and the Great Depression 1919–1939. Oxford: Oxford University Press.
Eichengreen, Barry. 2006. Global Imbalances and the Lessons of Bretton Woods. Cambridge, Mass.: MIT Press.
Eichengreen, Barry, and Douglas A. Irwin. 1995. Trade blocs, currency blocs and the reorientation of world trade in the 1930s. Journal of International economics 38(1–2):1–24.
Eichengreen, Barry, and Kris J. Mitchener. 2004. The Great Depression as a credit boom gone wrong. Research in Economic History 22: 183–237.
Eichengreen, Barry, and Jeffrey Sachs. 1985. Exchange Rates and Economic Recovery in the 1930s. Journal of Economic History 45 (4): 925–946.
Estevadeordal, Antoni, Brian Frantz, and Alan M. Taylor. 2003. The rise and fall of world trade, 1870–1939. Quarterly Journal of Economics 118(2): 359–407.
Federico, Giovanni, and Karl Gunnar Persson. 2007. Market Integration and Convergence in the World Wheat Market, 1800–2000. In The New Comparative Economic History: Essays in Honor of Jeffrey G. Williamson edited by Timohty J. Hatton, Kevin H. O’Rourke, and Alan M. Taylor. Cambridge, Mass.: MIT Press, pp. 87–113.
Ferguson, Niall, and Moritz Schularick. 2006. The empire effect: the determinants of country risk in the first age of globalization, 1880–1913. Journal of Economic History 66(2): 283–312.
Flandreau, Marc, and Clemens Jobst. 2009. The empirics of international currencies: network externalities, history and persistence. Economic Journal 119(537): 643–64.
Flandreau, Marc, Jacques Le Cacheux, and Frédéric Zumer. 1998. Stability without a pact? Lessons from the European gold standard, 1880–1914. Economic Policy 26:
117–162.
Friedman, Milton, and Anna J. Schwartz.1963. A Monetary History of the United States, 1867–1960. Princeton, N.J.: Princeton University Press.
Grimm, Maximilian, Òscar Jordà, Moritz Schularick, and Alan M. Taylor. Forthcoming. Loose Monetary Policy and Financial Instability. Review of Economic Studies.
Hamilton, James D. 1983. Oil and the macroeconomy since World War II. Journal of Political Economy 91(2): 228–248.
Hamilton, James D. 2009. Causes and Consequences of the Oil Shock of 2007–08. Brookings Papers on Economic Activity 40(1): 215–83.
Hynes, William, David S. Jacks, and Kevin H. O’Rourke. 2012. Commodity market disintegration in the interwar period. European Review of Economic History 16(2):
119–143.
Jacks, David S. 2004. Market integration in the North and Baltic Seas, 1500–1800. Journal of European Economic History 33(3): 285–329.
Jacks, David S. 2005. Intra-and international commodity market integration in the Atlantic economy, 1800–1913. Explorations in economic history 42(3): 381–413.
Jacks, David S. 2006. What drove 19th century commodity market integration? Explorations in Economic History 43(3): 383–412.
Jacks, David S., Kevin H. O’Rourke, and Jeffrey G. Williamson. 2011. Commodity price volatility and world market integration since 1700. Review of Economics and Statistics 93(3): 800–813.
Jordà, Òscar, Moritz Schularick, and Alan M. Taylor. 2013. When Credit Bites Back: Leverage, Business Cycles, and Crises. Journal of Money, Credit, and Banking 45: 3–28.
Jordà, Òscar, Moritz Schularick, and Alan M. Taylor. 2015. Betting the House. Journal of International Economics 96: S2–S18.
Jordà, Òscar, Moritz Schularick, and Alan M. Taylor. 2015. Leveraged Bubbles. Journal of Monetary Economics 76: S1–S20.
Jordà, Òscar, Moritz Schularick, and Alan M. Taylor. 2016. Sovereigns Versus Banks: Credit, Crises, and Consequences. Journal of the European Economic Association 14:
45–79.
Jordà, Òscar, Moritz Schularick, and Alan M. Taylor. 2017. Macrofinancial History and the New Business Cycle Facts. In NBER Macroeconomics Annual 2016, vol. 31, edited by Martin Eichenbaum and Jonathan Parker. Chicago: University of Chicago Press, pp.
213–263.
Jordà, Òscar, Moritz Schularick, and Alan M. Taylor. 2020. The Effects of Quasi-Random Monetary Experiments. Journal of Monetary Economics. 112: 22–40.
Jordà, Òscar, Sanjay Singh, and Alan M. Taylor. The Long-Run Effects of Monetary Policy. Review of Economics and Statistics. Forthcoming.
Jordà, Òscar, and Alan M. Taylor. 2016. The time for austerity: estimating the average treatment effect of fiscal policy. Economic Journal 126(590): 219-255.
Jordà, Òscar, and Alan M. Taylor. 2019. Riders on the storm. In Challenges for Monetary Policy. Proceedings of a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyo., August 22–24, 2019. Kansas City, Mo.: Federal Reserve Bank of Kansas City, pp. 17–59.
Keynes, John Maynard. 1923. A Tract on Monetary Reform. London: Macmillan.
Keynes, John Maynard. 1936. The General Theory of Employment, Interest and Money. London: Macmillan.
López-Córdova, J. Ernesto, and Christopher M. Meissner. 2003. Exchange-rate regimes and international trade: Evidence from the classical gold standard era. American Economic Review 93(1): 344–353.
Malmendier, Ulrike, and Stefan Nagel. 2011. Depression Babies: Do Macroeconomic Experiences Affect Risk Taking? Quarterly Journal of Economics 126: 373–416.
Malmendier, Ulrike, and Stefan Nagel. 2016. Learning from Inflation Experience. Quarterly Journal of Economics 131(1): 53–87
McCauley, Robert N., and Schenk, Catherine R. 2020. Central bank swaps then and now: swaps and dollar liquidity in the 1960s. BIS Working Paper 851.
Meissner, Christopher M., 2005. A new world order: explaining the international diffusion of the gold standard, 1870–1913. Journal of International Economics 66(2): 385–406.
Mitchener, Kris J., and Gary Richardson. 2019. Network contagion and interbank amplification during the Great Depression. Journal of Political Economy 127(2): 465–507.
Monnet, Eric. 2014. Monetary policy without interest rates: Evidence from France’s Golden Age (1948 to 1973) using a narrative approach. American Economic Journal: Macroeconomics 6(4): 137–169.
Monnet, Eric. 2018. Controlling Credit: Central Banking and the Planned Economy in Postwar France, 1948–1973. Cambridge: Cambridge University Press.
Monnet, Eric and Damien Puy. 2020. Do old habits die hard? Central banks and the Bretton Woods gold puzzle. Journal of International Economics 127: 103394.
Obstfeld, Maurice, 2013. The international monetary system: living with asymmetry. In Globalization in an age of crisis: Multilateral Economic Cooperation in the Twenty-First Century edited by Robert C. Feenstra and Alan M. Taylor. Chicago: University of Chicago Press, pp. 301–336.
Obstfeld, Maurice, Jay C. Shambaugh, and Alan M. Taylor. 2004. Monetary sovereignty, exchange rates, and capital controls: The trilemma in the interwar period. IMF Staff Papers 51 (S1): 75–108.
Obstfeld, Maurice, Jay C. Shambaugh, and Alan M. Taylor. 2005. The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility.” Review of Economics and Statistics 87: 423–38.
Obstfeld, Maurice, Jay C. Shambaugh, and Alan M. Taylor. 2009. Financial Instability, Reserves, and Central Bank Swap Lines in the Panic of 2008. American Economic Review Papers and Proceedings 99: 480–86.
Obstfeld, Maurice, Jay C. Shambaugh, and Alan M. Taylor. 2010. Financial Stability, the Trilemma, and International Reserves.” American Economic Journal Macroeconomics 2: 57–94.
Obstfeld, Maurice, and Alan M. Taylor. 2003. Globalization and capital markets. In Globalization in historical perspective edited by Michael D. Bordo, Alan M. Taylor, and Jeffrey G. Williamson. Chicago: University of Chicago Press, pp. 121–188.
Obstfeld, Maurice, and Alan M. Taylor. 2003. Sovereign risk, credibility and the gold standard: 1870–1913 versus 1925–31. Economic Journal 113(487): 241–275.
Owyang, Michael T., Valerie A. Ramey, and Sarah Zubairy. 2013. Are government spending multipliers greater during periods of slack? Evidence from twentieth-century historical data. American Economic Review 103(3): 129–134.
Persson, Karl Gunnar. 1999. Grain Markets in Europe, 1500–1900: Integration and Deregulation. Cambridge: Cambridge University Press.
Persson, Karl Gunnar. 2004. Mind the gap! Transport costs and price convergence in the nineteenth century Atlantic economy. European Review of Economic History 8(2): 125–47.
Ramey, Valerie A. 2011. Identifying government spending shocks: It's all in the timing. Quarterly Journal of Economics 126(1): 1–50.
Ramey, Valerie A., and Sarah Zubairy, 2018. Government spending multipliers in good times and in bad: Evidence from US historical data. Journal of Political Economy 126(2): 850–901.
Reinhart, Carmen M., and Kenneth S. Rogoff. 2009. This Time is Different: Eight Centuries of Financial Folly. Princeton, N.J.: Princeton University Press.
Rey, Hélène. 2013. Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence. In Global Dimensions of Unconventional Monetary Policy. Proceedings of a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyo., August 21–24, 2013. Kansas City, Mo.: Federal Reserve Bank of Kansas City, pp. 285-333.
Richardson, Gary, and William Troost. 2009. Monetary intervention mitigated banking panics during the great depression: quasi-experimental evidence from a federal reserve district border, 1929–1933. Journal of Political Economy 117(6): 1031–1073.
Romer, Christina D., and David H. Romer. 1989. Does monetary policy matter? A new test in the spirit of Friedman and Schwartz. In NBER Macroeconomics Annual 1989, edited by Olivier J. Blanchard and Stanley Fischer. Cambridge, Mass.: MIT Press, pp. 121–70.
Romer, Christina D., and David H. Romer. 2004. A New Measure of Monetary Shocks: Derivation and Implications. American Economic Review 94(4): 1055–1084.
Schenk, Catherine R., 1998. The origins of the Eurodollar market in London: 1955–1963. Explorations in Economic History 35(2): 221–238.
Schenk, Catherine R., 2010. The Decline of Sterling: Managing the Retreat of an International Currency, 1945–1992. Cambridge: Cambridge University Press.
Schularick, Moritz, and Alan M. Taylor. 2012. Credit booms gone bust: Monetary policy, leverage cycles, and financial crises, 1870–2008. American Economic Review 102: 1029–61.
Temin, Peter. 1991. Lessons from the Great Depression. Cambridge, Mass.: MIT Press.
Temin, Peter, and Barrie A. Wigmore. 1990. The End of One Big Deflation. Explorations in Economic History 27(4): 483–502.
Thomas, Ryland, and Nicholas Dimsdale. 2017. A millennium of UK macroeconomic data. Bank of England dataset.
Thornton, Henry. 1802. An Enquiry into the Nature and Effects of the Paper Credit of Great Britain. London: Hatchard.
White, Eugene N. 1984. A Reinterpretation of the Banking Crisis of 1930. The Journal of Economic History 44(1):119–138.
